Definition ∞ An asset-backed token is a digital representation of ownership or a claim on a tangible or intangible asset. These tokens derive their value from an underlying reserve asset held off-chain or on-chain. This mechanism provides a direct link between the digital token and a real-world or digital asset, such as commodities, real estate, or other cryptocurrencies. The token’s price stability or utility often depends on the stability and liquidity of its backing asset.
Context ∞ The current discourse surrounding asset-backed tokens focuses on their potential to bridge traditional finance with decentralized finance. Key debates often address the transparency and auditability of the underlying assets, alongside the legal enforceability of claims. Regulatory bodies are actively seeking to establish guidelines for these tokens to ensure investor protection and market integrity.
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